In 1690, the English navy lost badly to the French at the Battle of Beachy Head. King William III needed a new fleet, and the Crown's credit was so poor that nobody wanted to lend to it. Charles II had defaulted on the goldsmiths only eighteen years earlier, and London had a long memory. A Scottish merchant named William Paterson proposed a solution. A group of private investors would lend the government £1.2 million at 8 percent interest. In return, they would be incorporated as a bank with the right to take deposits and issue notes. The subscription filled in about twelve days, and in July 1694 the Bank of England received its charter. It was not created to protect savers or keep prices stable. It was created to fund a war. Here is the part worth sitting with. The bank's capital was lent straight to the government, and the government's promise to repay sat behind the notes the bank issued. A loan to the state became money that circulated across London. The goldsmiths had stretched receipts beyond their gold. The Bank of England went further and turned government debt itself into money. That arrangement became the template for central banking around the world, and the beginning of what we now call the national debt. So who controlled the ledger now? Not nature, and no longer just the goldsmith down the street. A private bank and the Crown, bound together by mutual need. The government got easier access to money for wars. The bankers got interest and a privileged seat at the centre of the system. Savers got paper. The partnership suited both sides so well that it has never really ended. Tomorrow, what happens when everyone wants their money back at once. Follow and ring the 🔔 on our profile so you don't miss a day.

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